Quiz for Chapter 13: Long-term investment decision
Bill Williams has the opportunity to invest in project A that costs $9,000 today and promises to pay annual end-of-year payments of $2,200, $2,500, $2,500, $2,000, and $1,800 over the next 5 years. Or, Bill can invest $9,000 in project B that promises to pay annual end-of-year payments of $1,500, $1,500, $1,500, $3,500, and $4,000 over the next 5 years.
a. How long will it take for Bill to recoup his initial investment in each respective project (A&B)?
b. Using the payback period method, which project should Bill choose? Do you see any problems with his choice?
c. Using all other methods, make up a good recommendation for Bill.
